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May 1991

Executive summary of GASB pronouncements. (Governmental Accounting Standards Board)

by Deis, Don

    Abstract- The Governmental Accounting Standards Board (GASB) has issued 13 statements, a concept statement, and a codification of accounting standards for government since it was created in 1984. Statements include GASB 1, Authoritative Status of NCGA Pronouncements and AICPA Industry Audit Guide, issued in 1984, which states that the Audit Guide and Statements of Position of the American Institute of Certified Public Accountants will remain in force until changed by regulations of the GASB; GASB 2, Financial Reporting of Deferred Compensation Plans Under the Provision of Internal Revenue Code Section 457, issued in 1986, which requires that non-federal governments utilize an agency fund for plan assets and liabilities to employees; and GASB 3, Deposits with Financial Institutions, Investments (Including Repurchase Agreements), and Reverse Repurchase Agreements, issued in 1986, which requires note disclosures by governments about contractual or legal provisions associated with investments or deposits.

GASB 1, "Authoritative Status of NCGA pronouncements and AICPA Industry Audit Guide" (1984). Statements of the NCGA and the AICPA Audit Guide and SOPs that will remain in force until modified by the GASB.

GASB 2, "Financial Reporting of Deferred Compensation Plans Under the Provision of Internal Revenue Code Section 457" (1986). Deferred compensation plans that let governmental employees defer part of their salaries (and thus defer federal income taxes), are authorized under IRC Sec. 457. This statement requires state and local governments to use an agency fund for plan assets (which are usually invested) and related liabilities to employees, whether the assets are held by the government, a public employee retirement system, or an outside organization (e. g., insurance company). The liability is measured by the participants' shares of the market value of plan assets and, thus, plan assets should be valued at market.

GASB 3, "Deposits with Financial Institutions, Investments (Including Repurchase Agreements), and Reverse Repurchase Agreements" (1986). Deposits by governments with financial institutions (e.g., banks) and investments (e.g., commercial paper) are often regulated by statutes, ordinances, contracts, etc. In a repurchase agreement the government transfers cash to a broker-dealer or financial institution and the broker-dealer or financial institution transfers securities to the government and promises to repay the cash plus interest in exchange for the return of the same securities. In a reverse repurchase agreement, the government temporarily converts securities in its portfolio and agrees to repurchase those securities at a later date. Thus, these repurchase agreements are similar to collateralized loans.

Government entities should make certain note disclosures about legal or contractual provisions for deposits and investments, including repurchase agreements. Additional information on deposits and investments should be included, such as authorized types of investments and violations during the period of legal or contractual provisions. If deposits are collateralized above federal insurance, the carrying amounts and market values of the securities pledged by depositories should be disclosed in the notes.

GASB 4, "Applicability of FASB Statement No. 87, 'Employers' Accounting for Pensions' to State and Local Governmental Employees" (1986). This statement concluded that governments should not change accounting and reporting procedures based on SFAS 87, because pension accounting continues to be a GASB agenda item.

GASB 5, "Disclosure of Pension Information by Public Employee Retirement Systems and State and Local Governmental Employers" (1986). Information needs related to pensions include: the effect that contributions to pensions will make on present and future government resources, the security of pension benefits and the performance of administrators and fiduciaries whether or not benefits are being funded. Because single year financial data do not provide sufficient information, 10-year historical trend data is needed as supplementary information.

This statement focused on financial statement disclosure (usually reported in notes and as supplementary information) on pension information. Fundamental disclosure includes the calculation of the pension benefit obligation based on the "projected unit credit" method. This disclosure differs somewhat from SFAS 35 because it considers the effect of salary increases expected to be received by employees until retirement. This standardized pension obligation measure is independent of the actuarial funding measure.

Disclosures required for defined benefit plans for single-employer and pooled (agent) multiple public employers' retirement systems include: 1) plan description; 2) amounts and types of securities; 3) funding status and progress (pension benefit obligation, actuarial update and significant actuarial assumptions used to complete PBO--rate of return on investments, projected salary increases); 4) contributions required and contributions made; 5) three-year historical trend information; and 6) reference to 10-year historical trend information.

GASB 6, "Accounting and Reporting for Special Assessments" (1987). This statement eliminates the special assessment fund type for financial reporting purposes. Instead, special assessment operations are reported in the fund type that best reflects the nature of the services provided; e.g., capital project and debt service funds for construction and debt service operations, respectively.

GASB 7, "Advance Refunding Resulting in Defeasance of Debt" (1987). Advance refunding means that new debt is issued to pay interest and principal on old debt. Most advance refunding results in defeasance; i.e., debt is satisfied 1) legally or 2) in-substance (when debt is considered satisfied for reporting purposes but not legally satisfied). When debt is defeased it is not reported as a liability on the balance sheet; instead, the new debt is the reported liability. Advance refunding may be used to take advantage of lower interest rates, extend maturity dates, revise payment schedules, or change restrictions in old debt agreements.

For defeasance of debt in the general long-term debt account group, new debt proceeds should be reported as other financing sources in the fund receiving the proceeds. Payments to the escrow agent from new debt proceeds should be reported as other financing uses, but proceeds from other sources should be reported as debt service expenditures. Defeasance of debt in a proprietary fund should follow commercial practices (APB Opinion 26, SFAS 4, and SFAS 64).

GASB 8, "Applicability of FASB Statement No. 93, 'Recognition of Depreciation by Not-for-Profit Organizations,' to Certain State and Local Governmental Entities" (1988). Governmental colleges and universities and other governments that use specialized industry reporting principles should not change accounting and reporting for depreciation of capital assets as a result of SFAS 93.

GASB 9, "Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Accounting" (1989). Proprietary funds and nonexpendable trust funds must present a statement of cash flows (in place of a statement of changes in financial position). Public employee retirement systems and pension trust funds are exempt from this requirement. Cash receipts and payments are categorized into four groups: operations, non-capital financing, capital and related financing, and investment activities.

GASB 10, "Accounting and Financial Reporting for Risk Financing and Related Insurance Issues" (1989). Public entity risk pools generally shall follow standards of SFAS 60, on insurance accounting, relating to revenue recognition of pool premiums and expenses associated with claim costs and estimated costs of claims. Government entities (exclusive of risk pools) must report expenditures/expenses for estimated losses according to SFAS 5 criteria. Risk activities would normally be recorded in the general fund or an internal service fund.

GASB 11, "Measurement Focus and Basis of Accounting--Governmental Fund Operating Statements" (1990). This statement requires the flow of financial resources measurement focus for governmental fund operating statements and accrual accounting. The intent is to provide better appraisal of interperiod equity. Revenue recognition will follow accrual (based on "the transaction underlying the tax and the demand for taxes") rather than the modified accrual criteria of "measurable and available." The consumption method must be used for supplies and prepaid items (e.g., insurance). Compensated absences also require that expenditures be accrued (except non-vested sick leave) rather than cash basis. The effective date is for periods beginning after June 15, 1994.

GASB 12, "Disclosure of Information on Postretirement Benefits Other Than Pension Benefits by State and Local Governmental Employers" (1990). Other post-retirement benefits (OPEB) include postretirement healthcare benefits and other benefits separate from pension and retirement plans, such as life insurance. This statement requires disclosure of OPEB rather than a change in accounting recognition. The required disclosures include: 1) a description of the OPEB provided, employee groups covered, and the employer and participant obligations to contribute; 2) a description of the statutory, contractual, and other authority under which OPEB provisions and obligations to contribute are established; 3) a description of the accounting and financing or funding policies followed for OPEB; and 4) the OPEB expenditures/expenses recognized for the period and certain related data.

GASB 13, Accounting for Operating Leases with Scheduled Rent Increases" (1990). Operating leases with scheduled rent increases shall be accounted for according to the terms of the lease contract if the pattern of payments is systematic and rational. However, if payments are artificially low compared to earlier or later payments requirements, the government must use either a straight line basis or recognize rent expense based on the estimated fair value of the rental.

Gary Giroux, Professor of Accounting, Texas A&M University; and Don Deis, Associate Professor of Accounting, Corpus Christi State University

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